JUDGMENT :

S. RAVINDRA BHAT, J.

1. These appeals are directed against a judgment and order of the Gujarat High Court, ¹[M/s Shri Jagdamba Polymers Ltd. & Ors. v Union of India & Ors., Special Civil Application No. 19324 of 2018.] wherein mandatory fulfilment of a ‘pre-import condition’²[Paragraph 4.13 of FTP, read with the HBP.] incorporated in the Foreign Trade Policy of 2015-2020 (“FTP”) and Handbook of Procedures 2015-2020 (“HBP”) by Notification No. 33/2015-20 and Notification No. 79/2015-Customs, both dated 13.10.2017, was set aside. According to the High Court, such fulfilment in order to claim exemption of Integrated Goods and Services Tax (“IGST”) ³[Leviable under Section 3 (7) of The CUSTOMS TARIFF ACT , 1975.] and GST compensation cess⁴[Leviable under Section 3 (9) of The CUSTOMS TARIFF ACT , 1975.] on input imported into India for the production of goods to be exported from India, on the strength of an advance authorization⁵[Paragraph 4.03 of FTP.] (“AA”) was arbitrary and unreasonable.

I. Background

2. In terms of the Foreign Trade (Development & Regulation) Act, 1992 (“FTDRA”) the Central Government (“Union”) had been framing, from time to time, Export-Import Policies (or FTPs) for the development, regulation and control of imports and exports in the country. The Union announced duty exemption schemes as well. One among these was the AA. To regulate and guide the procedure to be followed for implementing the provisions of the FTP and the rules framed thereunder, the Director General of Foreign Trade (“DGFT”) notified the HBP, chapter 4 of which prescribed the procedure for availing duty exemption/remission schemes. By paragraph 4.27, exports in “anticipation of authorisation” were permitted, so as not to create hindrances and delays in execution of export orders. At the time, Notification No. 18/2015-Customs dated 1.04.2015 exempted payment of basic customs duty (“BCD”), additional duty (countervailing duty (“CVD”), special additional duty (“SAD”)), safeguard duty and anti-dumping duty on inputs imported against a valid AA.

3. The GST regime was introduced with effect from 01.07.2017. However, no amendment was made to Notification No. 18/2015-Customs with respect to IGST and compensation cess, resulting in the collection of these levies for the inputs imported into India against AAs.

4. On 13.10.2017, six existing notifications were amended. Notification No. 79/2017-Customs amended Notification No. 18/2015-Customs by granting IGST and compensation cess exemption, subject to the following two conditions:

“Provided further that notwithstanding anything contained hereinabove for the said authorisations where the exemption from integrated tax and the goods and services tax compensation cess leviable thereon under sub-section (7) and sub-section (9) of section 3 of the said CUSTOMS TARIFF ACT , has been availed, the export obligation shall be fulfilled by physical exports only.” ⁶[Proviso to clause (viii), as contained in Notification No. 79/2017.]

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“That the exemption from integrated tax and the goods and services tax compensation cess leviable thereon under sub-section (7) and sub-section (9) of section 3 of the said CUSTOMS TARIFF ACT shall be subject to pre-import condition” ⁷[Addition of clause (xii), as contained in Notification No. 79/2017.] (emphasis supplied)

At the same time, Notification No. 33/2015-2020 was issued, amending various provisions of the FTP, whereby this